Kie Ann Wong

Day-of-the-week effects: evidence from developing stock markets

An extension of the research on the day-of-the-week effect to the stock markets of Singapore, Malaysia, Hong Kong, Thailand and Taiwan is presented. These small-sized markets are still much neglected. We find that there is a day-of-the-week effect in all these markets except Taiwan. These four markets have negative mean returns on Monday or Tuesday and high positive returns on Friday. Further analysis with four subperiods of data reveals that the weekly seasonal patterns appear to be period specific. The US stock market has little contribution to the day-of-the-week effect in these four markets. Thin trading does not seem to have a significant impact on the day-of-the-week effect in the Singapore market.

The Information Environment of China's A and B Shares: Can We Make Sense of the Numbers?

In 1990, three stock exchanges were opened in Shanghai, Shenzhen and Beijing. Partial privatization of Chinas enterprises began with offering two types of shares: A shares are sold only domestically to locals and are denominated in local currency; B shares are denominated in dollars and are sold only to foreign investors. All listed firms offer A shares, but to qualify for offering B shares, the firm must prepare financial statements in accordance with International Accounting Standards and also meet other requirements. Firms issuing A shares only adopt domesticaccounting regulations.As a way of generating capital funds, market segmentation has been a success. Both types of shares, however, have two different information environments. The environment of A shares appears to be dominated by local regulations and customs at the time of offering or trading. The information environment of A shares appears to be relatively unstructured and is affected by informal communication between various groups. Other than the roles played by state officials and appointed managers, external monitoring of A shares appears to be limited. Independence and social acceptance of auditing appear to be making slow progress, especially when the majority of domestic CPA firms are government owned. In contrast, the information environment for the B shares is more structured because (1) financial reporting adheres to International Accounting Standards, (2) financial statements are audited by CPA firms with international practice; and (3) foreign investors – mainly large financial institutions – also act as external monitors.We elaborate on the differences between these two information environments and suggest that accounting earnings and A share prices are not correlated, but earnings and share prices are correlated for B shares. In an event-study approach, we find results inconsistent with both hypotheses – for 1994 and 1995 we find that earnings and unexpected returns are correlated for A shares but not for B shares. The high price volatility, the significant and continuing dominance of government officials, and the thinness of trade in B shares are offered as possible explanation for these results.

AGE, PERIOD, AND COHORT EFFECTS ON LIFE INSURANCE PURCHASES IN THE U.S.

Previous studies of life insurance demand mainly employ multivariate regression analysis to examine the social, economic and demographic effects on life insurance purchases. However, this causal modeling approach can not separate the age, period, and cohort effects completely. This study employs cohort analysis method as well as age standardization and decomposition to examine the life insurance purchase pattern in the U.S. from 1940 through 1996. It finds that, without the aging process, the purchase rate in 1990 and 1995 would have been even lower. It also finds that the baby boomers tend to purchase less life insurance than their earlier counterparts and that this phenomenon consequently led to the decline of recent life insurance purchases in the U.S. Men show a strong age effect and strong negative cohort effects while women have strong positive cohort effects.

Underwriting Cycles in Asia

This study examines the presence and causes of the underwriting cycle in Asia. It also compares the characteristics of the underwriting cycle in emerging markets in Asia with its characteristics in developed markets. We found that, first, second-order autoregression results support the existence of the underwriting cycle in Asia. Second, the analysis of premium changes provides some support for the rational expectations/institutional intervention hypothesis. Third, although there is little evidence to prove that the stock markets and interest rates have caused the cycle in Asia, the results seem to indicate that the underwriting cycles in Asian countries are mainly related to the pace of the economic growth in those countries. Fourth, our results with respect to the factors affecting the changes in premiums generally differ from those found for the developed nations.

Market values, earnings' yields and stock returns: Evidence from Singapore

Abstract Results of U.S. studies about the relation between stock returns and the effects of firm size and earnings to price ratio (E/P) are not consistent. Basu (1983) argues that E/P dominates size, while others conclude that size dominates E/P. This paper attempts to provide evidence on these two effects with a sample of data, 1975–1985 from the Stock Exchange of Singapore. We find that stock returns are significantly related to both size and E/P. But, the size effect appears to be of secondary importance when compared with E/P effect.

The behaviour of Hong Kong stock prices

The primary function of a stock market is to allocate resources to the most profitable investment opportunities. If stock prices provide accurate signals for resource allocation, firms are able to make correct production–investment decisions, and investors are able to choose the most suitable stocks for investment. These choices are only possible if the market is efficient, that is, if stock prices ‘fully reflect’ all available information. Hong Kong is now an international financial centre. Although Hong Kongs stock market is ranked as one of the five largest in the world in terms of turnover, little research has been devoted to the behaviour of its stock prices. This is a study of the efficiency of Hong Kongs stock market. It is based upon two widely accepted statistical tests, namely, serial correlation analysis and runs tests. Data used cover the daily prices of 28 major Hong Kong stocks over a period of four years from 1977 to 1980. The evidence is mixed; it does not provide clear support for the e...

Is there an intra-month effect on stock returns in developing stock markets?

An intra-month effect on stock returns is found in the US stock market and the Australian stock market, but a reverse intra-month effect is found in the Japanese market. It is shown that such an effect is almost non-existent in the stock markets of Singapore, Malaysia, Hong Kong, Taiwan, and Thailand. The returns of these markets seem to be generated by a process which is fairly independent of other major markets. This supports the argument that investors should diversify beyond country boundaries

The firm size effect on stock returns in a developing stock market

Abstract The empirical relationship between firm size and returns on the stocks listed on the Stock Exchange of Singapore is examined in this study. The results show that the stocks of small firms have earned higher returns than the stocks of large firms, and that the firm size effect is still significant when risk-adjusted returns are controlled for difference in earnings/price (E/P) ratios.

Intermarket timing in equity investments: Hong Kong versus Singapore

Market timing offers an attractive alternative to buying‐and‐holding assets if the investors can predict market movements accurately. The objective of this paper is to test the profitability of market timing between two national equity markets and to determine the required level of predictive accuracy for such a venture to pay off. Hong Kong and Singapore stock markets are chosen due to the likeliness for investors to switch investments between these two markets. Three different frequencies of portfolio revision together with three levels of transaction costs are employed in the test. The results reveal that portfolios, that are revised every quarter, display the most likelihood of achieving profits greater than that of a buy‐and‐hold strategy. However, the required level of predictive accuracy may still be beyond the reach of most of the investors.

China: Is Now the Time to Invest?

his article discusses the unfolding investment opportunities in the rapidly developing stock markets of the People’s Republic T of China (PRC), often called Mainland Chna, Communist China, or simply China. Between 1949, when the Communists took over the mainland of China, and 1978, the Chinese economy was managed by the central government under strict controls. Government-owned business corporations handed over their profits to the state treasury and were financed by government budget allocations and loans. Companies never raised capital from private investors. Individuals had no investment opportunities other than bank savings accounts. China’s financial system was characterized by complete nationalization of financial institutions, total suppression of financial markets, and isolation from the world community. All financial institutions that existed before 1949 were merged into the government-owned People’s Bank of China (PBC). With no independent banking system or financial markets, interest rates and exchange rates diverged from competitive, open market rates. By 1978, it became clear to the national leadership that an economy that relied almost exclusively on centralized planning and bureaucratic control had resulted in stagnant productivity, extensive inefficiency, and low morale among the population (see Jao [1990]). Other countries that chose to follow a market-oriented economic strategy (especially the newly industrialized economies of Hong Kong, Singapore, South Korea, and Taiwan) had achieved economic miracles despite the fact that in the early 1950s they were not appreciably better off than China. It was against this background that economic and banking reforms were launched in 1978. The objective of the reform in banking was to create financial institutions and markets capable of mobilizing savings and allocating capital funds in a costeffective way so as to finance sustainable, non-inflationary, economic growth, and to reintegrate China with the world financial system (see Jao [1991]). Since 1979, China has been cautiously relaxing its policy toward foreign banks. In recent years, over forty foreign branches have sprung up, located mostly in Special Economic Zones such as Shenzhen and Xiamen. In 1980, China rejoined the International Monetary Fund and the World Bank; in 1984, China established a formal business relationship with the Bank for International Settlements; and in 1986, China joined the Asia Development Bank. Participation in these international organizations and the willingness to observe international obligations ended